Recession and corruption are haunting Spain

Who would be Prime Minister of Spain right now? Dreadful growth figures published this morning are showing the worst recession in Spain since the 1950s; an ever worsening dispute with a wannabe independent Catalonia; and a corruption scandal that is rapidly engulfing both the ruling Popular Party and the House of Bourbon - the Spanish royal family.

The economic news gets worse and worse. The financial crisis has eased, in as much as Madrid can now borrow money on the international markets at around 5% compared to more than 7% a few months ago, but the economy is in freefall. Unemployment is close to six million out of a population of 45 million, with 60% of 18-25 year olds out of work. GDP shrank by 1.8% in 2012, and fell by 0.7% in the last three months alone. All the deadlines set by Brussels for getting Spain’s budget deficit under control have been missed, and will need to be extended once again.

Mariano Rajoy at a campaign rally in Barcelona in November 2011 Credit: REUTERS/Albert Gea

Prime Minister Mariano Rajoy sees an economy rapidly heading the way of Greece, and will soon announce a series of stimulus measures aimed at encouraging businesses and entrepreneurs, but his budget cuts go on. There is almost no chance either of growth or falling unemployment this year.

Virtually every Spanish region is so deeply in debt that its only source of cash is a government in Madrid that itself is functionally (if not yet actually) bankrupt. Catalonia is the richest and most productive region of all, and yet is shut out of the international money markets and is now asking Madrid for €9 billion (£7.7bn) on top of the €5 billion (£4.3bn) in emergency funding it received last year. Madrid’s response? To come down even harder on the politicians manoeuvring for an independence referendum.

The latest move is a new law ‘banning’ the regions from expanding their contacts with other governments and foreign organisations. In Barcelona, the Catalan response has been to deliberately step up their diplomatic activities. The stage is being set for the mother of all showdowns between Barcelona and Madrid, and it is not going to be pretty.

Marchers wave Catalonian nationalist flags during a celebration in Barcelona in September 2012 Credit: REUTERS/Albert Gea

If that wasn’t enough, two separate corruption scandals are engulfing Rajoy’s party and the royal family. The former treasurer of the Popular Party was revealed as having had up to €22 million (£18.9m) secretly stashed in a Swiss bank account. A businessman called Francisco Correa has for years been bribing party officials in return for public contracts. The sums are both large and regular, with talk of brown enevelopes stuffed with between €5,000 and €15,000 (£4,290-£12,870) being passed to party hacks every month.

Exactly to whom, and for what, is still to be established, as is the exact source of the millions in Switzerland. Even in normal times a scandal of this scale would have the potential to shatter the authority of a party in government. At the very moment the country is experiencing a catastrophic fall in living standards, voters’ anger is everything you would expect it to be. Rajoy himself is currently ‘enjoying’ an approval rating of just 15% - a poor base on which to try to win support for tough and unpopular decisions.

King Juan Carlos has long been a symbol of stability in Spain Credit: EMPICS Sport/EMPICS Sport

While over at the Palacio Real de Madrid, the King’s son-in-law, Inaki Urdangarin (aka the Duke of Palma de Mallorca), is already being investigated for misappropriation of public money. Now the Royal Secretary to Urdangin’s wife, Princess Christina, and her sister Princess Elena, has also been named as a suspect. The damage to the once hugely popular King Juan Carlos is immense.

Ever since the King replaced General Franco as head of state, he has been an indispensable source of political stability in Spain. Damage to the royal household is the very last thing Spanish democracy needs right now.